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Transmeta upbeat about first quarter

The low-power chipmaker tops estimates for the fourth quarter and raises its financial targets for the first quarter.

Transmeta on Thursday topped estimates for the fourth quarter and raised its financial targets for the first quarter.

The maker of low-power chips for mobile devices lost $17.3 million, or 20 cents per share, excluding certain charges.

Two analysts that follow the company expected Transmeta to lose 17 cents per share, according to First Call. Yet Pacific Growth Equities analyst Brian Alger said this was because analysts overestimated the number of shares outstanding for the quarter.

"The difference is entirely due to the share count," said Alger, who has a "buy" rating on Transmeta stock. His firm doesn't have underwriting ties to Transmeta.

The $17.3 million loss was actually better than expected, Alger said. "It was a solid quarter. They had a lower-than-expected loss and higher-than-expected revenue, and that's pretty much the equation for a good business."

Shares traded at $22.63 in after hours on Island ECN. Transmeta rose 50 cents to $23.06 in regular trading on Thursday ahead of the quarterly earnings release.

Including amortization charges, Transmeta lost $26.2 million, or 30 cents per share. Revenue was $12.4 million, close to 13 percent higher than analysts' estimates of $11 million, according to First Call. Gross margins were about 42 percent for the quarter.

Transmeta said revenue for the first quarter should increase 50 percent sequentially. "We feel the infrastructure is now in place to support strong top line growth in 2001," President Mark Allen said during a conference call with analysts.

Gross margins for the March quarter should rise to 44 percent as manufacturing yields increase, the company said. Transmeta expects sales, general & administrative expenses as well as research and development costs to be flat compared to the fourth quarter.

"I'm going to have to move my revenue number higher for the first quarter," Alger said.

For the year, Transmeta lost $74.2 million, or $1.66 per share, excluding certain charges. Including charges, Transmeta lost $97.7 million, or $2.18 per share, on revenue of $16.2 million.

Thursday's financial report is Transmeta's first since its IPO. Although the stock started off strong following its public debut in November, shares have fallen steadily since then.

During the first quarter, the company announced a number of customer wins, including NEC and Hitachi. Sony also began shipping its Vaio PictureBook, the first notebook computer to use Transmeta's Crusoe processor. The PictureBook however soon drew criticism for lackluster performance and an average battery life. IBM also abandoned a much-touted project to add a Crusoe chip in its ThinkPad 240 mini-notebook.

Problems with some Crusoe chips led to NEC recalling a small number of their LaVie notebooks in Japan to replace faulty motherboards. Sony also issued a warnings to customers about potential problems with the chip, but did not recall any notebooks. Although the problems were few, Transmeta shares fell on the news.

The NEC recall had no effect on Transmeta's financial report, Allen said. Ten products complete with Crusoe processors were shipping by the end of December, he added. That total is expected to increase to at least 15 products in the first quarter, the company said.

Although other chip companies and PC makers have been hit by an overall hardware sales slowdown, Transmeta investors shouldn't be concerned, Allen said. "Although the desktop market is slowing, the notebook market is established and (is) growing at a double-digit rate," Allen said.

Because Transmeta is still a young company, Alger said its main concern is the company's ability to perform in the competitive market, rather than the general effects of a possible recession

"Right now, I don't see Transmeta being affected by the macro picture," Alger said. "I'm looking at Transmeta for the next six to nine months almost in a vacuum...We're a long way from measuring Transmeta like Intel and AMD."